US labour market continues to improve, triggering rate hike debate

GMT 17:31 2015 Saturday ,06 June

Arab Today, arab today US labour market continues to improve, triggering rate hike debate

US labour market
Washington - XINHUA

The U.S. job market continued steady growth momentum in May, triggering market debate over the timing for the Federal Reserve's first interest rate hike in almost nine years.

The U.S. economy added 280,000 jobs in May, the strongest monthly gains so far this year, beating market expectation of around 220,000, while the unemployment rate edged up to 5.5 percent from April's 5.4 percent, the Labor Department reported Friday.

Job gains occurred in professional and business services, leisure and hospitality and health care, while the mining and logging employment has seen the fifth consecutive monthly decline, likely reflecting cutbacks in oil production.

Following the release of the report, the U.S. stocks opened lower, as the strong job report heightened investors' concern that possibility for the Federal Reserve to raise interest rates this year becomes higher.

After a weak first quarter performance, some economists argue the Fed should wait some time to assess whether the factors affecting the first quarter economy were transitory or persistent, before it moves to the interest rate hike.

The International Monetary Fund on Thursday cut U.S. economic growth forecast for 2015 down to 2.5 percent and called for the Fed to delay its rate hike until the first half of 2016, as the current inflation rate in U.S. does not warrant a rate hike without risks in the next few months.

In regard to the labor market, the IMF said long-term unemployment, subdued participation, and high levels of part-time work point to remaining employment slack, and wage indicators on the whole have shown only tepid growth.

The number of long-term unemployed, or those jobless for 27 weeks or more, held at 2.5 million, accounting for 28.6 percent of the unemployed. The labor force participation rate, the share of the working-age population employed or looking for a job, ticked up to 62.9 percent in May. Since April 2014, the participation rate has remained within a narrow range of 62.7 percent to 62.9 percent.

Average hourly earnings rose by 8 cents to 24.96 U.S. dollars in May. Over the year, the figure has risen by 2.3 percent, a little better than the 2 percent annual pace in recent years.

Lael Brainard, governor of the Federal Reserve Board, said this week that there is still room for employment and hours worked to grow further, as the labor market slack cannot be captured by the unemployment rate. She will take some time to assess the underlying economic strength in view of the soft data at the beginning of this year and the headwinds from the global economy, when considering the first interest rate hike, said the senior official.

However, most Fed officials, including the Fed chair Yellen, have said that they expect to begin raising the rates this year. Market investors widely see September or even later as the most likely time for a Fed rate increase. The Fed has kept its benchmark short-term interest rate near zero since December 2008.

In her recent speech, Yellen also shared similar view with the IMF, saying the labor market has not reached its full strength despite the significant gains of the past couple years, as there is still slack in the labor market, because some people forced to leave job market due to lack of job opportunities.

But she warned of the risk of overheating the economy with a delayed interest rate hike, and said that if the economy continues to improve as she expects, it will appropriate to raise the interest rates at some point of this year.

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